Relevance (UPSC GS-II: Polity & Governance—Judiciary, Rights; GS-III: Economy—Digital Assets, Taxation)

What’s the news?

The Madras High Court has ruled that cryptocurrency qualifies as “property” under Indian law—an asset that can be owned, enjoyed, transferred, and held in trust. The dispute involved user holdings on a crypto exchange after a hack. The court relied on the broad meaning of “property” in Indian law and noted that crypto falls within “virtual digital asset” under Section 2(47A) of the Income Tax Act, rejecting the view that it is merely speculative.

Why this matters

• Legal protection: Classifying crypto as property allows courts to protect investor holdings, issue injunctions, and recognise trust/custody relationships.
  
• Compliance clarity: It aligns private rights with existing tax treatment of virtual digital assets and may guide insolvency, inheritance, and enforcement actions involving crypto.
  
• Exchange accountability: Platforms cannot reallocate or “socialise” user assets without consent; courts can restrain such actions.
  
• Regulatory signal: Though policy on trading is evolving, recognition as property is a step toward clearer rules.
  

But What is a Cryptocurrency?

A cryptocurrency is a virtual or digital currency secured by cryptography and organized on a decentralized network using blockchain technology. This decentralized structure allows cryptocurrencies to operate without a central authority, like a bank or government, and enables secure online payments. 

How cryptocurrency works

• Decentralization: Cryptocurrencies exist on distributed ledgers called blockchains. The blockchain is maintained by a network of computers, which removes the need for a central intermediary to verify and facilitate transactions.
• Cryptography: Encryption algorithms and other cryptographic techniques are used to secure transaction entries, making it nearly impossible to counterfeit or double-spend.
• Transactions: When a transaction is initiated, the network of computers running the blockchain software verifies and executes it. A log of these transactions is then recorded on the blockchain. 

Key legal takeaways

• Property status → users have enforceable rights against exchanges and third parties.
  
• Not mere speculation → recognised as a virtual digital asset under tax law.
  
• Jurisdiction & remedies → Indian courts can freeze, protect, and return disputed tokens where facts connect to India.
  

Exam hook

Frame answers around (a) property rights, (b) tax definition—VDA, (c) implications for custody, insolvency, and enforcement, and (d) need for a harmonised regulatory framework.

UPSC Prelims question

With reference to recent judicial developments in India, consider the following statements:

1. Courts have recognised cryptocurrency as property capable of being held in trust.
   
2. Cryptocurrency is expressly excluded from the definition of virtual digital asset under the Income Tax Act, 1961.
   
3. Recognising crypto as property enables courts to issue injunctions to protect investor holdings.
   Which of the statements given above is/are correct?
   (a) 1 only (b) 1 and 3 only (c) 2 and 3 only (d) 1, 2 and 3
   Answer: (b)
   

One-line wrap
By calling crypto “property,” the court has handed investors real rights—and nudged India closer to a clearer digital-asset regime.